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cee167-fa00-mt1-Ibbs-soln

# cee167-fa00-mt1-Ibbs-soln - CE 167 Midterm#1 Fall 2000 Prof...

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CE 167 Midterm #1 Fall 2000 Prof. C.W. Ibbs Question #1 [15 Points] The amount of \$600 per year is to be paid into an account over each of the next 4 years. The nominal interest rate is 15% per year. Determine the total amount the account will eventually contain under the following conditions: (a) Deposits are made at the beginning of the year with interest compounding yearly: NFV = [\$600 (F/A, 15%, 4)](1+i) NFV = \$600 ) 1 ( 1 ) 1 ( i i i n + + NFV = \$600 ) 15 . 0 1 ( 15 . 0 1 ) 15 . 0 1 ( 4 + + NFV = \$344.45.43 (b) Deposits at the end of the year with interest compounding yearly: NFV = [\$600(F/A, 15%, 4)] This is the same as the Part (a), except you do not have to account for the extra year of interest NFV = \$600 + 15 . 0 1 ) 15 . 0 1 ( 4 = \$2996.03 For Parts (a) & (b), 3 points were awarded for the correct usage of the formula, and 2 points for the correct answer. (c) \$50 deposits are made at the end of each month with interest compounding monthly: Since i = 15% is a nominal yearly rate , you must find i effective : i effective = 1 1 + m m r = 1 12 15 . 0 1 12 + = 16.08% i effective = 16.08% per year = 1.34% per month This part was worth 1 point A=\$600 F=? Because the equations are set up so that payment are made at the end of the year , you have to account for the one extra year’s worth of interest made by making the deposit at the beginning of the year! A=\$600 F=? 0 1 2 3 0 1 2 3

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